Increased demand for second homes favored smaller towns
The Mountain-West region[1] is the hottest housing market in the country. Of the 20 cities covered in the S&P CoreLogic Case-Shiller Home Price Index, Phoenix had the fastest year-over-year appreciation in December 2021, growing 32.5% annually. Another popular market was Denver, where prices increased 109% compared to the previous peak in August 2006. Right behind Denver was Boise, Idaho. According to the
Homebuyer interest in the Mountain-West can be attributed to several factors. The region has a fundamentally sound housing market that has had steady population growth and wage increases for decades, making it a reliable bet for investors. Also, it is a logical relocation point for people who are priced out of expensive cities on the West Coast. Finally, the Mountain-West has a relatively strong supply of detached single-family homes that can facilitate remote work and are available at reasonable prices in low-density areas with many outdoor amenities — reasons that have become more relevant over the past two years.
The move out of densely populated areas is very well documented, and most of the
Though not in the Mountain-West, many of the other cities in Table 1 (Santa Barbara, California; Santa Cruz, California; Key West, Florida; and Naples, Florida) underscore the increase in demand for outdoor and natural amenities with second-home purchases. The importance of having outdoor amenities can be seen in the high share of second homes found in cities with access to ski resorts, national forests, parks or oceans. Figure 1 charts the average second-home purchase share for 10 CBSAs against the average U.S. rate. We see the average purchase in a CBSA is 1.4 to 1.5 times more likely to be a second home in the list of top 10 equity gainers than the rest of the country.
Despite the migration away from densely populated regions, this trend should not be exaggerated. Table 2 shows the top 10 locations to gain home equity in Q4 2018, which was well before any sign of the pandemic. Four of the cities that had the largest home equity gains in 2018 were also top performers in 2021, though the amount of equity gained was much less in 2018 than in 2021. However, the Mountain-West has been growing for decades, so it is fairer to say that the pandemic amplified a pre-existing trend rather than created one.
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[1] The U.S. Census Bureau defines the Mountain-West as the region encompassing Arizona, Colorado, Idaho, New Mexico, Montana, Utah, Nevada and Wyoming.
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